January 28, 2014
Yew Kong Lye
The path towards owning your first home is fraught with pitfalls, frustrations and disappointments.
The decision to purchase your first home is one of the biggest decision anyone is likely to make. Therefore, it should be done right and the more information you have, the better decisions that you will make. Getting the right information like how much deposit is required, the First Home Owner’s Grant, variable or fixed interest rate, etc , is not the issue because such information are readily available on the internet.
PSYCHOLOGY OF OWNING YOUR FIRST HOME
What might pose as a greater challenge is the psychology of owning your first home. What is stopping you when you have the right savings and income? In my business, the highest cancellations of appointments are with potential first home owners. They seem to get cold feet at the last moment and are not prepared to front up to be educated and receive some useful information. In my experience, the following are the top 3 issues preventing many people from owning their first home:
1.FEAR OF THE COMMITMENT OF A HOME LOAN
Very often the reason why someone does not take action towards their goals or plan is FEAR - False Expectation Appearing Real. That’s exactly what fear is. It is almost always irrational and can be debilitating because it prevents people from taking action. I have often seen young couples who have the right income and savings to purchase their first home but, do not. I can tell that their heads are playing games with them. They will have all sorts of irrational fears like:
- what if I lose my job?
- what if interest rate rise to 18% like in the good old days?
- what if we have a baby?
- what if the sky falls down?, etc, etc.
It appears that they are just looking for a reason why they shouldn’t do it. In my experience, one effective way of dealing with fear, is firstly to recognise that it’s irrational and it's all made up. Then ask yourselves this question to confront any fear: “What’s the worst that can happen?” In the case of buying your first home, the worst thing that can happen is that you can’t honour your home loan repayments.
So what? Just sell your home and go back to renting. You’ve just gone back to square one, lost some sleep and it’s not all bad - you have not died and the world has not ended. Always tell yourself, things could be worse. Better still, focus on the positive and tell yourself that you can do better - buy the home with the pool instead of the budget one that needs work!
2.YOU HAVE NOT REACHED THE BREAKING POINT
Most people will not take action to achieve what they want when they are in a comfort zone. People mostly gravitate towards feeling good and avoiding pain. As long as it doesn’t hurt that much, people will avoid taking action. You need to feel the pain and reach a breaking point before you will take any action. To take any action, you need to get the feeling that, it will hurt so much and your world will fall apart or that you’ll probably die, if no action was taken. That is the defining moment!
For a smoker, being completely out of breath after climbing some flights of stairs and realising that he will die if he doesn’t give up smoking, is a defining moment; a breaking point.
For the potential first home buyer maybe, you need to feel the hurt of not owning a home, the lost opportunities and paying dead rent to motivate you to start. As most people move towards pleasure to initiate action, focus on the joys of owning a home - nobody to tell you that you can’t hang a picture on the wall, you don’t have to hide your pets and the best thing is, that it’s all yours when the home loan is paid off.
3. LACK OF SAVINGS AND NO SAVINGS PLAN
It constantly amazes me in the course of my business, how young professionals on a good income don’t have two cents to rub together in savings. On further investigation as to where all the good money has gone, they have invariably, gone up in a puff of smoke to fund lifestyle. They would not bat an eyelid in spending $5,000 on an Armani suit/Versace gown or jetting off to Timbuktu (It’s a real city in Mali) for a camel race or watch the sun set (Can’t make sun rise, because of all the partying).
Delaying gratification, I’m afraid, is not in their realm of consciousness. This may be harsh but, certainly not judgemental, just a keen sense of observation. In order to purchase your first home, you need to have some savings and there’s no way around it unless you have generous parents who can give you a deposit of 20% or more. As a rule of thumb, you need to save about 10% of the purchase price of your potential first home to get you started.
Then start a savings plan. List all your monthly expenses and resolve to do away with absolutely frivolous lifestyle expenses and see what you’ll save in a year. That is the easy part. Next you want to look at all your expenses and see where you can get some savings without much effort. I read recently that by doing some simple things and changing your habits, a couple can save on average $8,000 annually.
Some simple strategies includes taking left overs to work for lunch, using discount coupons, avoid using ATMs from other banks, etc. Personally, I find there are big savings shopping in markets rather than supermarkets. Supermarkets operate in an environment of little competition and their products are generally more expensive than markets. Moreover, it’s more fun shopping in markets (Like Vic Market) and every major city has its own markets.
Once you have reviewed all your expenses and determined what you can eliminate and where the savings are, prepare a budget and stick to it as much as possible. Personal budgeting templates are easily available on the internet.
IT'S ALL IN YOUR HEAD
Remember that owning a home doesn’t mean you don’t have a life. Just budget carefully and buy what you can afford while still maintaining a reasonable lifestyle. If you have a decent income and savings, buying your first home is all in your head. Henry Ford said, “Whether you think you can, or you think you can’t, you’re right”
If you think you 'CAN', call me on 0413 871 888